This is a positive sign, but debts of 4th and 5th Groups (insolvent debts) still account for a high proportion and banks still have not set up any risk provisions.
Banks still tackling old bad debts
At the end of the first six months of 2019, the bad debt ratio in on-balance sheet of commercial banks increased only slightly to 1.91% compared to 1.89% at the end of 2018. However, the absolute bad debt ratio increased significantly, showing that only 17 listed joint stock commercial banks had VND 81,300 bn, an increase of 9% compared to the beginning of the year. As 5th Group debt accounts for 54% of total bad debt, there have been concerns about new bad debts arising while banks are still tackling with old bad debts. But the financial statements of 3rd Quarter 2019 in a number of banks showed that the bad debt ratio had either decreased or increased slightly, only a few banks recorded a higher increase.
Specifically, by the end of September, bad debt ratio at Sacombank showed a decrease from 2.2% to 2%. Including VAMC bonds, Sacombank bad debt ratio was estimated at 11.6% at the end of September, decreasing significantly compared to 14.7% at the beginning of the year. The bad debt ratio to total outstanding loans of VIB also decreased rapidly from 2.52% to 2.04%, ACB decreased from 0.73% to 0.67%, and SeABank decreased from 1.51% to 1.31% compared to the beginning of the year. Consolidated bad debt at VPBank is at 3.1%, while it was at 4.24% in the same period last year. VPBank individual bad debt dropped to 2.45%, FE Credit bad debt also dropped from 6.36% to 5.21%. VietBank recorded bad debt ratio of 1.23%, down 0.6% compared to the end of 2018. BacABank bad debt ratio continued to be among the lowest, at only 0.72%.
Some banks only slightly increased their bad debts, such as Vietcombank with a bad debt ratio of 1.07%, up 0.98% compared to the beginning of the year. The bad debt of MB's parent bank increased by 1.35% compared to 1.22% at the end of 2018. The bad debt ratio to total outstanding customer loans at KienlongBank increased from 0.94% to 1.07%.
Among the banks that published financial statements, only a few banks have bad debt ratios above 3%. On 30 September, bad debt at PGBank showed at VND 694 bn in on-balance sheet, an increase of 6.2% compared to the beginning of the year. The bad debt ratio to total outstanding customer loans increased slightly from 2.96% to 3.07%. ABBank had bad debt in on-balance sheet of VND 1,766 bn, and the bad debt ratio to total outstanding loans stood at 3.39%.
According to Resolution 42, effective from 15 August 2017, bad debt settlement results were VND 236,800 bn until the end of August this year. In which, the bad debt in on-balance sheet was VND 137,000 bn, and bad debts accounted off-balance sheet were at VND 47,970 bn. Especially, bad debts sold to VAMC were paid by bonds at VND 51,120 bn.
Movement of bad debt ratio in banks increased at the end of 2nd Quarter but decreased at the end of 3rd Quarter. Some people said that bad debts always go along with banks and the bad debt ratio in each period may increase or decrease. In the past three years, movement of bad debts has been relatively stable, while the whole system kept bad debt ratio below 2%, which is an acceptable level.
Bad debts still a burden
Although there have been positive signs, the bad debt ratio in total outstanding loans in banks only increased slightly or decreased in the past nine months mainly due to increase in credit. Typically, Vietcombank increased customer loans by upto 12% to VND 708,095 bn. So, total bad debt at the end of the third quarter increased by VND 491 bn compared to the end of June and increased by VND 1,402 bn (equivalent to increase of 22.5%) compared to the beginning of the year, to VND 7,625 bn. However, the bad debt ratio in total outstanding loans also increased from 0.98% at the beginning of the period to 1.08%.
Small banks bear the burden of making provisions by bad debts. 3rd Quarter net profit before the risk provision of VietCapital Bank reached VND 100 bn (down 9% over the same period) and in the whole nine months reached nearly VND 193.7 bn (down more than 32% over the same period). This bank made quite a strong risk provision with VND 109.4 bn, and profit of nine months was only at VND 84 bn. SeABank's provision expenses also accounted for 45.5% of its net profit from operating activities. Kienlongbank's provision expense in nine months was VND 42.5 bn, up by 74% over the same period. Sacombank set a risk provision of VND 1,684 billion in nine months, up 43%. VIB increased its provision by 11% to VND 519 bn.
According to financial experts, the reason banks still face burden of 5th Group debt or set up a high provision under Resolution 42 to handle bad debts has greatly supported the commercial banking system to resolve the bad debt problem, but in reality many banks still face many difficulties related to the issue of handling collaterals to recover debts. Recently, a number of commercial banks conducted strong handling of collaterals. Although a bank has the right to self-determination to ensure its benefits, in reality banks still face difficulty in applying strong tactics, because when the property owners do not want to cooperate with the bank, it is also difficult for the bank to sell the collaterals.
In order to release this burden of provisioning, there should be a market-based debt trading mechanism. Establishment of a centralized market for bad debts in Vietnam, which was directed by the Prime Minister in Decision 1058/QD-TTg on 19 July 2017, approved the scheme “restructuring the system of organizations, credit institutions associated with dealing with bad debts for the 2016-2020 period”, but there have not been many changes despite this directive. So, VAMC had to promote the establishment of the AMC bad debt club with the participation of 19 Debt Management and Asset Management Companies (AMC) with the purpose to boost the debt purchase and the sale market in Vietnam.